Deck 2: Measurement Concepts: Recording Business Transactions

Question 1

The valuation issue deals with how the components of a transaction should be categorized.

Answer 1

False

Question 2

A decrease in a liability is recorded by a credit.

Answer 2

False

Question 3

Fair value is the exchange price of an actual or potential business transaction between market participants.

Answer 3

True

Question 4

A transaction that increases expenses will decrease stockholders' equity.

Question 5

For a T account,an account balance is the difference in total dollars between total debit footings and total credit footings.

Question 6

The general ledger is the basic storage unit for accounting data and is used to accumulate
amounts from similar transactions.

Question 7

Business transactions are economic events that should be recorded in the accounting records.

Question 8

Dividends are shown on both the income statement and the statement of retained earnings.

Question 9

The first step in the accounting cycle is to post the journal entries to the ledger and prepare a trial balance.

Question 10

Normally,the value of an asset remains at its initial fair value or cost until the asset is sold,expires,or is consumed.

Question 11

Dividends are deductions from stockholders' claims on retained earnings and are shown on the statement of retained earnings.

Question 12

The Common Stock account represents the stockholders' claim against specific assets of the company,while the Retained Earnings account represents the stockholders' claim against the general assets of the company.

Question 13

The normal balance of an account is the side (debit or credit)used to decrease the account.

Question 14

Generally accepted accounting principles state that all business transactions should be valued at fair value both when they occur and at all subsequent reporting dates.

Question 15

One of the general rules of the double-entry system is that total debits must always be equal to total credits.

Question 16

The double-entry system is possible because all business transactions have at least two equal and opposite aspects.

Question 17

In accounting,to recognize means to record a transaction or event.

Question 18

A credit to an asset account means that asset account has been increased.

Question 19

A debit has an unfavorable effect on an account.

Question 20

A decrease in the Retained Earnings account is recorded with a debit.

Question 21

A trial balance may be prepared at any point in time.

Question 22

A journal entry is a notation that records a single transaction in the chronological accounting record known as the book of original entry.

Question 23

The general journal is a chronological record of all transactions.

Question 24

In a journal entry,debits are always indented.

Question 25

When a transaction results in an account with a balance that isn't "normal," the "abnormal" balance should be corrected to the "normal" balance before copying the balance into the trial balance.

Question 26

When the columns of the trial balance equal each other,it is still possible that errors may have occurred in recording and posting the transactions.

Question 27

Generally,before Accounts Receivable is debited,it is credited.

Question 28

A journal entry is a notation that consists of either a single debit or a single credit that is recorded in the general ledger.

Question 29

In a trial balance,all debits are listed before all credits.

Question 30

In a journal entry,the Post.Ref.column is left blank until the entry has been posted.

Question 31

A transposition error will cause the trial balance to be out of balance by an amount that is evenly divisible by two.

Question 32

A trial balance is normally prepared at the end of each business day.

Question 33

A compound journal entry involves at least two debit accounts and two credit accounts.

Question 34

When a company records the purchase of 1 month of prepaid expense the transaction does not affect the totals of assets or liabilities and stockholders' equity.

Question 35

The final step of the transaction analysis is the preparation of the trial balance.

Question 36

Entering transactions into the journal is called posting.

Question 37

A ledger account is an abbreviated version of a T account.

Question 38

Liabilities are established with credits and eliminated with debits.

Question 39

Recording an account with a debit balance as a credit,or an account with a credit balance as a debit,will cause the trial balance to be out of balance by an amount that is evenly divisible by two.

Question 40

A journal entry shows the date,credit account,and credit amount shown on one line,and the debit account (indented)and debit amount shown on the next line.

Question 41

In the general journal,the year appears on the first line of the first column,the month on the next line of the first column,and the day in the second column opposite the month.

Question 42

When a business reports an asset at an inflated dollar amount,is has violated the measurement issue of

A)recognition.
B)valuation.
C)classification.
D)realization.

Question 43

When a company pays an employee for work performed,it is considered an economic event that is recorded as a transaction.

Question 44

One way a company can manage its expenditures is to rely on its creditors to give it time to pay for purchases.

Question 45

All sales transactions generate immediate cash.

Question 46

A transaction should be recorded when title to merchandise passes from the supplier to the purchaser and creates an obligation to pay.

Question 47

Another name for the ledger is the book of original entry.

Question 48

Journal entries are typically posted to the ledger only at the end of the year.

Question 49

In order to manage a company's liquidity,managers and other users of financial information must understand the difference between transactions that generate immediate cash and those that do not.

Question 50

The timing of cash flows is critical to a company's ability to maintain adequate liquidity so that it can pay its bills on time.

Question 51

When a business hires a new employee,a recordable transaction has occurred.

Question 52

When a company receives a product previously ordered,a recordable transaction has occurred.

Question 53

A purchase should usually not be recognized (recorded)before the title is transferred because,until that point,the vendor has not fulfilled its contractual obligation and the buyer has no liability.

Question 54

All expenses incurred by a business are paid immediately in cash.

Question 55

The general ledger is used to record the details of each transaction.The general journal is used to update each account.

Question 56

One might see "J5" correctly placed in the Post.Ref.column of the Accounts Payable account.

Question 57

The issue of deciding when to record a transaction is solved by

A)properly classifying the transaction.
B)deciding on a point of recognition.
C)assigning historical cost to the transaction.
D)analyzing the intent of management.

Question 58

Purchase requests and purchase orders are economic events,and as such they affect a company's financial position,and are recognized in the accounting records.

Question 59

Purchasing office supplies on account is an example of one way a company can take advantage of deferring a cash payment.

Question 60

Which of the following is not a measurement issue in accounting?

A)When to record a business transaction.
B)How to classify the items of a business transaction.
C)When to classify the items of a business transaction.
D)Where to record a business transaction.

Question 61

Which pair of accounts follows the rules of debit and credit in the same manner?

A)Service Revenue and Equipment
B)Land and Dividends
C)Notes Payable and Buildings
D)Wages Expense and Service Revenue

Question 62

Proper __________ depends on correctly analyzing the effect of each transaction and on maintaining a system of accounts that reflects that effect.

A)classification
B)valuation
C)recognition
D)realization

Question 63

Which pair of accounts follows the rules of debit and credit in the opposite manner?

A)Prepaid Insurance and Dividends
B)Advertising Expense and Land
C)Dividends and Service Revenue
D)Interest Payable and Common Stock

Question 64

Which of the following does not impact the Statement of Retained Earnings?

A)Common Stock
B)Revenues
C)Expenses
D)Dividends

Question 65

After initially recording an asset at cost,fair value is

A)the price at which an asset could be sold in a current transaction between independent parties.
B)the actual,or historical,price at which the asset was acquired.
C)the easiest value used to measure and record assets.
D)verifiable at all future dates by referring to the invoice price paid for the asset.

Question 66

Which of the following events does not require a journal entry?

A)Purchase of a one-year insurance policy.
B)Agreement to perform a service at a future date.
C)Payment for a service performed previously.
D)All of these choices.

Question 67

When a service has been performed,but no cash has been received,which of the following statements is true?

A)The entry would include a debit to Accounts Receivable.
B)The entry would include a debit to Accounts Payable.
C)The entry would include a credit to Unearned Revenue.
D)No entry is required until the cash is received.

Question 68

When a company has performed a service but has not yet received payment,what is the required journal entry to be recorded?

A)Accounts Receivable - Debit;Service Revenue - Credit
B)Service Revenue - Debit;Accounts Payable - Credit.
C)Service Revenue - Debit;Accounts Receivable - Credit
D)No entry is required until the cash is received.

Question 69

Which of the following accounts is increased with a credit?

A)Office Supplies
B)Unearned Revenue
C)Land
D)Prepaid Insurance

Question 70

The declaration of dividends will

A)decrease net income.
B)increase liabilities.
C)not affect total assets.
D)increase stockholders' equity.

Question 71

A company records a transaction in which six months' rent is paid in advance.Which of the following journal entries records the transaction?

A)Prepaid Rent - Debit;Cash - Credit
B)Rent Receivable - Debit;Cash - Credit
C)Rent Revenue - Debit;Cash - Credit
D)Rent Expense- Debit;Cash - Credit.

Question 72

Which of the following accounts is increased with a debit?

A)Common Stock
B)Rent Payable
C)Service Revenue
D)Prepaid Insurance

Question 73

Which of the following is an illustration of the classification issue?

A)At what amount should land be shown on the balance sheet?
B)At what point should the payment of salaries to employees be recorded?
C)Should supplies be recorded as an asset or as an expense?
D)At what point should a bill be paid for the purchase of an item?

Question 74

Receiving cash from a customer for settlement of an Accounts Receivable will

A)decrease Stockholders' Equity.
B)increase net income.
C)increase total assets.
D)not affect total assets.

Question 75

When a business erroneously records expenses as assets,it has violated the measurement issue of

A)communication.
B)classification.
C)valuation.
D)realization.

Question 76

Which of the following is the first step in the accounting cycle?

A)Prepare financial statements.
B)Analyze business transactions from source documents.
C)Prepare an adjusted trial balance.
D)Post the journal entries to the ledger.

Question 77

The cost principle relates most closely to the

A)recognition point.
B)recognition issue.
C)valuation issue.
D)classification issue.

Question 78

Which of the following is the final step in the accounting cycle?

A)Prepare financial statements.
B)Close the accounts.
C)Prepare an adjusted trial balance.
D)Post the journal entries to the ledger.

Question 79

The double-entry system

A)requires that each transaction be recorded with at least one debit and one credit.
B)requires that the total amount of the debits must always equal the total amount of the credits.
C)is based on the principle of duality.
D)All of these choices.

Question 80

Which of the following is not a measurement issue in accounting?

A)Valuation.
B)Recognition.
C)Evaluation.
D)Classification.